One possible solution
JESPN,
I had the exact same issue and a similar config as you (4GB RAM, Parallels Build 3214).
I actually noticed that during the windows XP SP2 initial install, I got a screen that says "loading windows" after it does its initial driver load sequence from the install CD. This screen is immediately followed by a blue screen of death of some kind that I can't read because Parallels flips into configuration mode too quickly.
The solution was to specifically create a .cdr disk image (not an ISO or DMG) of the XP install disk using Disk Utility. I then pointed the Virtual Machine's CD-ROM at the image file and it ran smoothly.
GL,
Adam
Last edited: Jun 29, 2007